Reference no: EM133235954

1. Assume there are two types of workers in the economy, high productivity workers and low productivity workers. The following table describes their various productivity levels, proportions, and costs of schooling. Assume that the two types of workers are indistinguishable and that schooling is not productive. Group Marginal Product Population Proportion Cost of y years of schooling

A 1 q y

B 2 1-q y

2 (a) Suppose employers believe that there is some level of education y such that:

if y < y then productivity = 1

if y y then productivity = 2

Is there a y such that rm beliefs are self-fullling? Write out all the steps.

(b) Would low-productivity workers prefer a pooling equilibrium? Show work.

(c) Would high-productivity workers prefer a pooling equilibrium? Show work.